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Stocks Classification of Stocks Selecting the most suitable type of stock or stock mutual fund for you depends on your financial goals, your risk tolerance and your level of expertise. There are many different stock and mutual funds that invest in stocks. These types of stocks or funds often represent a combination of asset classes. Some common classifications are: Aggressive growth stock/funds are concerned with growth; income is not a factor. These funds invest in small-cap stocks and companies that are currently out of favor. They may use investment techniques involving above-average risk. Balanced funds have a three-part investment objective: 1) to conserve investors' principal, 2) to pay current income and 3) to promote long-term growth of both this principal and income. They contain bonds, preferred stock, and common stock. Equity income stock/funds seek a high level of income by investing primarily on stocks of companies that consistently pay high dividends. Growth is a secondary objective. Global equity funds invest primarily in countries outside the U.S., but can include U.S. companies in their portfolios as well. These funds seek capital growth. Currency fluctuations, political instability and less efficient investment markets can increase the volatility of these funds. Growth and income funds invest mainly in the common stock of companies that have had increasing share value but also a solid record of paying dividends. This type of fund attempts to combine long-term capital growth with a steady stream of income. Growth stock/funds seek capital growth; dividend income is not a major factor. They invest in the common stock of companies with high earnings growth potential or that are in an expanding market/industry. Index funds are designed to mirror an established market index such as the S&P 500 or the Wilshire 5000, although actual returns may be lower than the index due to fund expenses. These are not managed in the same way as other funds. Securities are not traded to enhance total return. International stock/funds seek capital growth by investing in the stock of companies located outside the U.S. Two thirds of their portfolios must be so invested at all times to be categorized here. Currency fluctuations, political instability and less efficient investment markets can increase the volatility of these funds. International fund unit values and returns will fluctuate with market conditions, currencies, and economic and political climates where investments are made. Sector funds invest in a specific area such as health, technology, leisure, finance, etc. Higher potential return generally involves greater risk, and short-term volatility is not uncommon when investing in a sector fund. Classify stocks by asset classes In most cases, each classification of stocks or funds represents a cross-section of two or more asset classes. One method of categorizing asset classes is Growth and Value: Another common method of categorizing asset classes is Large Cap, Mid Cap and Small Cap: Large Cap Large-cap stocks represent well-established companies with capitalization exceeding $5 billion. Some large-cap stocks are also considered blue-chip stocks. Mid Cap Mid-cap stocks represent the stocks of companies with capitalization between $1.5 billion and $5 billion. Small Cap Small-cap stocks represent less-established companies with capitalization less than $1.5 billion. These categorizations of stocks and mutual funds may be applied to foreign companies and international funds. < PREVIOUS NEXT > #38599